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The Federal Government has changed the R&D Tax Incentive for companies with a turnover greater than $20 million for 2018-2019.
The research and development premium will provide different rates of non-refundable R&D tax offsets, increasing with the R&D intensity.
The cost of the R&D Tax Incentive was expected to be $1.8 billion per year when it was introduced in 2011-12 but in 2016-17 it cost around $3 billion. With the total handed out so far of around $6.1 billion.
The 2016 review of the R&D Tax Incentive found that the program is failing to meet its objectives of encouraging additional R&D and generating the associated flow-on benefits for the Australian economy.
The Review found that among larger companies, those with higher R&D intensity provide the greatest benefits to the Australian economy. Encouraging more companies to increase their R&D intensity and undertake additional R&D activities is a key objective of the R&D Tax Incentive.
2018-2019 R&D Tax Incentive Changes
The changes to the R&D Tax Incentive from the 2018 Federal Budget were:
- Annual Cap (<$20M) – For companies with turnover less than $20M there would be a $4 million annual cap on cash refunds.
- Annual Cap (>$20M) – For companies with turnover greater than $20M the maximum R&D expenditure eligible for tax offsets will be increased from $100 million to $150 million per year, although expenditure on clinical trials will not count towards the cap.
- R&D Intensity Test (>$20M) – For companies with turnover of more than $20M, there will be an R&D premium that ties the tax offset to the intensity of R&D expenditure compared with total expenditure.
- Enhanced Transparency – Compliance and administrative will be stepped up with the ATO and AusIndustry increasing levels of program guidance and enforcement activity. The ATO will also be able to publicly disclose claimant details and the R&D expenditure
The R&D Tax Incentive Intensity Levels
The R&D premium was 8.5% above the company’s tax rate for companies with revenue greater than $20M.
The R&D tax incentive rebate will be based on the R&D Intensity:
- 4 % for R&D expenditure between 0% – 2%
- 6.5 % for R&D expenditure between 2% – 5%
- 9 % for R&D expenditure above 5% – 10%
- 12.5% for R&D expenditure above 10%
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- Revenue: $30,000,000
- Total Costs: $25,000,000
- R&D Costs: $500,000